Enron Case Study

Enron Case Study Introduction Agency problem is one of the major challenges that shareholders face in their effort to maximize wealth through investment. One source of agency problems is associated with the existence of conflicts of interest. In an effort to increase their earnings, firms’ management teams engage in unethical practices such as financial irregularities. Additionally, they also implement operational strategies that aim at maximizing their firms’ profitability rather than the shareholders’ wealth.Advertising We will write a custom case study sample on Enron specifically for you for only $16.05 $11/page Learn More Therefore, to better illustrate how the operational strategies implemented by firms’ management teams can cause a firm to collapse, this paper evaluates the case of Enron Corporation. More focus goes to the firm’s cultural environment and the implemented management control. The paper also conducts an analysis of Enron ’s ineffectiveness in implementing a strong organizational culture and its inefficient management control system. Case background The case illustrates the rise and collapse of Enron Corporation. Some of the salient features evident in the case include: Factors that contributed to the rise of the company These factors are clearly illustrated and explained. The case makes it evident that Enron’s collapse was due to inefficient control by the company’s Chief Executive Officer, Jeff Skilling. The leadership style adopted by Jeff Skilling Leadership style stands out as the major factor that contributed towards the emergence of an inefficient organizational culture. Establishment of a â€Å"new economy†- Skilling laid more emphasis on transforming the firm from being an â€Å"old economy† to being a â€Å"new economy†. However, the leadership style he adopted had a negative impact on the firm’s effort to achieve its goal. Management contr ol system The case cites inefficiency in controlling the activities of the employees, which comes out as a major cause that significantly contributed towards the firm’s failure. Company attributes Enron Corporation was energy and commodities trading company, which was formed in 1985 by Kenneth Lay. Its headquarters were located in Houston, in the US. The firm owned the most extensive natural gas pipeline in the US. In a quest to maximize its profitability, the firm ventured into the international market. In addition to its energy business, Enron also positioned itself as a giant with regard to water and wastewater management having ventured into the industry in 1998. Upon its market entry, the firm gained global recognition courtesy of its strategic move with regard to its adoption of the â€Å"new economy† strategy. Enron’s management team appreciated the importance of diversification in an effort to maximize profitability. Consequently, the firm established n umerous divisions. Some of these divisions included online marketplace, transportation, wholesale, and broadband services. The firm’s decision to incorporate the concept of product and service diversification emanated from its founders’ focus on steering it towards maximizing the shareholders’ value. Business strategy The success of a firm depends on the effectiveness with which it formulates and implements business strategies. In the course of its operation, Enron adopted a business strategy that focused on attaining a high rate of expansion. Consequently, Enron incorporated a number of business strategies, which included internationalization and formation of mergers and acquisitions.Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The firm’s success in the international market emanated from its ability to implement strategic practices such as acq uisitions. For example, in 1987, Enron acquired Zond Corporation, a leader in wind-power, which provided an opportunity to venture into the renewable energy sector. The firm was very effective in venturing into the international market. In its internationalization strategy, one source of the firm’s success was its ability to formulate and implement effective international marketing campaigns. Industry analysis using Porter’s five forces Understanding industry characteristic is paramount in a firm’s efforts to formulate and implement competitive strategies. The porter’s model is one of the frameworks that are suitable in analyzing the intensity of competition, buyer and supplier bargaining power, degree of rivalry, and threat of entry of a particular industry. The industry was experiencing an increment in threat of entry due to its profitability potential. New firms especially firms dealing in production of renewable energy were considering the possibility of venturing into the industry to exploit the presented profitability. The threat of entry was minimal given that there were minimal legal barriers. The emergence of renewable forms of energy significantly increased the threat of substitute. Consumers were switching to renewable forms of energy. The intensity of competition led to an increment in the degree of industry rivalry. The various alternatives with regard to forms of energy significantly increased the buyers’ power. This aspect emanated from the fact that they could switch at a minimal cost. On the other hand, the suppliers’ bargaining power was low due to the large number of suppliers. SWOT Analysis Strengths Pipeline infrastructure-The firm established an elaborate natural gas pipeline network in the United States. The firm’s name attained a relatively high credibility given that it ranked 7th on the Fortune 500. Positive reputation-In the course of its operation, Enron managed to attain and sustain positive reputation. Its strength also emanated from the fact that it had attained a monopolistic advantage over its competitors emanating from its large size. The firm achieved this goal by positioning itself as the largest energy provider in the US. Human capital pool- A firm’s ability to attain high competitive advantage relative to its competitors is directly impacted by the quality of its human capital. In its operation, Enron had been very effective in enhancing its employees’ skills, abilities, knowledge, and capabilities by undertaking comprehensive training and development.Advertising We will write a custom case study sample on Enron specifically for you for only $16.05 $11/page Learn More Innovation- Enron’s management team appreciated the fact that it operated in a very dynamic industry. Consequently, it laid great emphasis on innovation in an effort to thrive. Its innovation ability enabled Enron to shift from natural gas an d energy transportation to being a trading company. The firm specifically focused on other areas such as pulp and paper production, coal, steel, and communication business lines. Marketing and value delivery- Since its establishment, Enron had been committed towards meeting the customers’ needs. Its ability to identify and deliver customer values played a significant role in enabling Enron to attain an optimal market position. Weaknesses Failed board of directors- The firm’s board of directors did not execute its oversight role effectively, which stands out clearly in the face of its inability to monitor the firm’s operations through its committees. Additionally, the firm’s board of directors failed in enhancing moral and ethical practices within the firm. As a result, its auditors and employees engaged in unethical practices such as deceit. Conflict of interest- The firm’s weakness also stands out given the inability of the management team to con trol conflicts of interest that occurred in various transactions that the firm engaged in during its existence. This aspect pushed the firm into great losses due to the persistent fraud, which further necessitated the firm’s collapse. Opportunities Public reputation -In the course of its operation, Enron developed a strong public reputation, which presents an opportunity that the firm could have exploited in the course of its operation. Consumers associated Enron with its ability to provide quality energy. Consequently, Enron could have exploited such public perception to expand its pipeline and other businesses. Additionally, Enron could have exploited the move by the government to deregulate the energy industry by venturing in other energy sectors. For example, the firm should have considered the possibility of venturing into production of clean energy. This move would have played a significant role in dealing with climate change challenges of the 21st century and thus the firm’s reputation would have improved significantly. Formation of mergers and acquisitions Considering the prevailing economic environment, Enron should have improved its competitive advantage by seeking reputable firms in the industry to form mergers and acquisitions. Some of the potential partners that the firm should have focused on included firms dealing in production of clean energy. In the course of its operation, Enron gained sufficient experience informing mergers and acquisitions. Threats Terrorist threat – The threat of terrorism had become real to firms in different economic sectors. Terrorists were increasingly targeting major infrastructure in the US such as energy plants in an effort to sabotage the country’s economy. Therefore, the extensive natural gas pipeline that Enron had developed in the US could have attracted terrorists, and such an occurrence could have a significant impact on Enron’s operation.Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Economic crisis- Due to the high rate of globalization, the US could not shield itself from the occurrence of another economic recession. The occurrence of a recession could have directly affected Enron because it derived a significant proportion of its revenue from household consumption. Competition In the course of its operation, Enron faced competition challenges emanating from the numerous firms in the US energy industry. The intense competition significantly increased the degree of rivalry within the industry. Consequently, most firms in the industry focused at formulating and implementing strategies that enhanced their ability to increase their market share. One of the strategies that the industry players were focusing on entails research and development. Organizational culture An organization’s culture has a significant impact on how its employees act. This aspect arises from the fact that the culture nurtured by a particular organization affects its traditions and cus tomers coupled with how employees execute their duties and responsibilities. Firms develop their culture over time. Upon his entry into the company, Jeff Skilling intended to transform the company’s culture into a â€Å"New Economy†, and to achieve this goal, he focused on transforming the company into becoming an exemplary intellectual capital firm that would greatly delight the shareholders and stakeholders. Consequently, Enron developed a culture that was characterized by intense regulation. This move significantly contributed towards the firm’s collapse. The firm’s management team believed that the culture it developed would foster its innovativeness and capacity to adapt. Consequently, the firm recruited the most talented employees mostly composed of new university graduates such as MBA holders. The decision to recruit employees of such caliber hinged on the management teams’ emphasis on entrepreneurial thinking and risk taking, which made the firm’s managers to become overconfident. Enron nurtured an aggressive culture that led to a high rate of employee turnover. This scenario arose from the fact that the firm laid more emphasis on attaining short-term results. The firm’s management team formulated an employee evaluation program that was conducted after every six months. The objective of the evaluation was to enhance the integrity and creativity amongst the employees. However, this move stressed most of the employees thus reducing their operational efficiency. Employees who succeeded in attaining the set targets received extensive monetary rewards such as salary increments, stock options, and bonuses. Skilling’s focus on development of such culture did not succeed. Instead, a culture of arrogance, fierce internal competition, and extreme decentralization became the norm. The firm’s manager was mainly concerned with transforming the institution into a postmodern, hyper-flexible, and a firm th at continuously re-invents in order to align with changes in the external business environment. According to Skilling’s opinion, this would enable the firm to increase its profitability. Conversely, the ever-changing characteristic of the firm made employees to perceive a significant decline in their job security. Due to its extensive expansion, Enron ventured into unfamiliar territories. The inexperience of the firm’s executives significantly contributed towards the occurrence of mistakes. Additionally, the management team’s emphasis on generation of ideas from the employees led to accumulation of information, which the firm could not process adequately. Its over-emphasis on risk taking made the firm to ignore the costs associated with such risks. Additionally, putting pressure on the employees to be creative stimulated most employees to take shortcuts, which were in most cases unethical. The firm’s employees laid more emphasis on creativity because it a ttracted great rewards compared to integrity. This aspect led to the occurrence of agency problem between shareholders and managers. Employees were mainly concerned with their personal welfare rather than attaining the shareholders’ wealth maximization goal. Problems and Key Issues raised in the case The case illustrates a number of problems and key issues that Enron experienced in the course of its operation. One of the major problems evidenced in the case touches on the accounting system used by the firm. Enron adopted an aggressive accounting style whereby the accounting officers inflated figures in the firm’s financial statements. Additionally, special partnerships were formed with the objective of defrauding the firm. The partnerships rendered the process of accounting very complicated. The accounting officer did not record the actual values in the firm’s accounting books. The records were made to look attractive, which was not the case. The management team engaged in fraudulent reporting by manipulating the firm’s revenue and earnings in order to sustain the firm’s credit rating. Consequently, most investors perceived the firm as a solid and reliable investment partner. The auditors colluded with the management team in return of huge financial gains. Approximately, the auditors and consultants earned between $25 million and $27 million in audit and consulting fees. In the course of executing its oversight duties, Enron ignored the firm’s financial capacity, which made its shares to rise significantly during the 1990s. Enron relied on the â€Å"mark to Market† accounting system, which enabled it to succeed in adjusting the value of its stocks and shares by reflecting the prevailing market value. By using this method, Enron comfortably reported its expected future earnings as current earnings. Therefore, Enron disregarded its codes of ethics, which is based on integrity, respect, excellence, and communicatio n. The existence of conflict of interest between managers and shareholders comes out clearly given the fact that the executive mainly focused on maximizing their earnings. In August 2001, the company Chief Executive Officer Jeff Skilling resigned from the company and immediately disposed off his stocks, which were valued at more than $33 million. In addition to the accounting fraud, another key issue that is evident in the case study relates to the firm’s overdependence on making deals. Despite the fact that Enron had developed a professional risk assessment and control committee, the committee did not execute its duties effectively. For example, the committee was reluctant to reject projects that were evidently risky. Its inability to execute this role was necessitated by the fact that the management team mainly focused on making deals that would contribute to increment in the firm’s cash flows, hence necessitating the firm’s ability to attain high growth. Addi tionally, the committee was reluctant to express its opinion regarding illegal businesses and practices that the firm was undertaking. This scenario arose from the fact that making such opinions would herald their career’s death. The firm’s management team rewarded blind loyalty to employees and quashed those who portrayed dissent. Enron situation fits perfectly in the theory of planned behavior. The theory explains that there exist reasons behind the occurrence of a particular situation. It asserts that unethical practices such as corruption mainly hinge on specific values and intent. Enron’s employees mainly focused on engaging themselves in extreme competitive actions and favored unethical practices in order to achieve their desired operational efficiency. The behavior thrived because the employees observed the optimal treatment to individuals who engaged in shortcuts to attain the desired level of creativity. Conclusion and recommendations In summary, the fr aud in Enron Corporation was a result of failure in the firm’s leadership system, management control, and ineffective organizational culture. Its focus on positioning itself as a â€Å"new economy† stimulated employees to engage in unfair activities in order to achieve the desired objective. Additionally, the management team developed a culture that focused on attainment of results rather than nurturing integrity. Consequently, employees engaged in unethical practices and disregarded the codes of ethics implemented by the firm. Therefore, to deal with these challenges, Enron should have considered the following recommendations. Enron should have adopted a progressive-adoptive culture. This culture focuses on generation of new ideas and openness to new ideas. However, it does not force employees to implement the ideas hence it does not enhance unhealthy competition. It would also have been important for the firm to consider nurturing a community-oriented culture, which mainly seeks to ensure a high level of collaboration and cooperation amongst employees. Adoption of such cultures would have played an important role in providing employees with direction. To ensure effective reporting, Enron should have incorporated accrual method of reporting to ensure accurate description of the company’s value. With regard to control issues, the firm should have adopted a more current control system by reviewing its policies, procedures, and rules. The policies and procedures should have focused on nurturing integrity and ethics. The firm should have remained strict in implementing ethical policies and procedures to refrain employees from unethical behavior. Appendix Action plan on how to implement the recommendations and the expected time duration Action Time December 2012 1st – 4th 7th 10th 11th 14th 15th –20th Reviewing the organization culture Reviewing the firm’s reporting system Evaluating the firm’ s management control system Reviewing the leadership system

The Rumor of Rapists Luring Victims With a Crying Child

The Rumor of Rapists Luring Victims With a Crying Child Several viral messages that have been circulating, through email and social media since 2005, claim that gang members in various parts of the world have begun using crying children. This claim surrounds the idea that they are pretending to be lost or in distress to lure female victims to secluded places to be assaulted. Police have repeatedly stated that there is no evidence that such tactics are being used by rapists. This viral text and email rumor is considered false and includes several examples over the years, with versions from 2005, 2011, and 2014. See these versions below, review the analysis of the rumor, and learn how viral rape warnings can be misleading. The 2014 Example As Shared on Facebook ATTENTION ALL GIRLS AND LADIES:If you walk from home, school, office or anywhere and you are alone and you come across a little boy crying holding a piece of paper with an address on it, DO NOT TAKE HIM THERE! Take him straight to the police station for this is the new gang way of Kidnap and rape. The incident is getting worse. Warn your families and friends.Repost this please! The 2011 Example As Received Through Email FW: Fox News Alert - Please Read!FROM CNN FOX NEWSThis is from the County Sheriff Department please read this message very carefully.This message is for any lady who goes to work, college or school or even driving or walking the streets alone.-If you find a young person crying on the road showing you their address and is asking you to take them to that address... take that child to the POLICE STATION!! No matter what you do, DONT go to that address. This is a new way for gang members to rape women. Please forward this message to all ladies guys so that they can inform their sisters friends. Please dont feel shy to forward this message. Our 1 message may save a life. Published by CNN FOX NEWS (Please circulate)..**Please DO NOT IGNORE! The 2005 Example As Delivered by Email Subject: New Rape Case TacticHi everyone, I am not sure when did this happen, but it is best to be careful and safety comes first.She was just discharged from the hospital...Today after office hours, I heard from my sister-in-law that there is a new way to rape women It happened to one of our good friends The girl left the office after working hours and saw a little child crying on the road Feeling pity for the child, she went and ask what happened The child said, I am lost. Can you take me home please? Then the child gave her a slip and tell the girl where the address is. And the girl, being an average kind person, didnt suspect anything and took the child there.And there when it arrived the childs home, she pressed the door bell, yet she was shocked as it the bell was wired with high voltage, and fainted. The next day when she woke up, she found herself in an empty house up in the hills, naked.She has never even get to see the face of the attacker... Thats why nowadays crimes are t argeted on kind peopleNext time if the same situation occurs, never bring the child to the intended place. If the child insist, then bring the child to the police station. Lost child are best to send to police stations.Please send this to all your female friends.(my extra note: guys, please tell your mom, your sister, your wife and your girlfriends too!) Analysis of the Viral Message Rumors Even though recent variants of this rumor have been shared under the guise of police warnings or sheriffs department warnings, no reports have been found. This includes documented cases in which rapists actually used, or even attempted to use, crying children as bait to lure female victims. Law enforcement officials have repeatedly denounced these warnings as hoaxes. The earliest version of the hoax was forwarded in 2005 by a reporter in Singapore who had already identified it as an urban legend. Within a month it had made its way to South Africa, and by May 2005 more copies began to circulate from readers in the United States. As of 2013, eight years later, law enforcement agencies were still fielding inquiries about it from El Paso to Petaling Jaya, Malaysia. Viral Rape Warnings Can Be Misleading and Dangerous People sometimes defend viral warnings like these by arguing that, even if false in their particulars, they remind women to keep their wits about them and be careful and that it cant hurt. What weakens that argument is that the false warnings are, in fact, specific. To the degree that potential victims are persuaded to focus their attention on a crying child as a sign that an attacker may be nearby, the more likely it is that theyll be inattentive to other cues, such as real cues, that theyre in danger.

Why Students Plagiarize and Consequences of Plagiarism Assignment - 1

Why Students Plagiarize and Consequences of Plagiarism - Assignment Example This paper seeks to try and identify exactly what is meant by plagiarism, the reason as to why it is so extensive and the probable effects of plagiarism on students and institutions. According to Anderson (1998), plagiarism can essentially be defined as the act of using another person’s words without undertaking to give the person any of the credit that is due to that person. Plagiarism is seen to have its root set in the traditional Western civilization concept of property ownership. During the historical period of the Greco-Roman era, it was common to find orators and authors frequently borrowing from one another, however, the discovery of such theft was usually met with a lot of public ridicule and sarcasm. Intellectual property protection can be deemed to be primarily concerned about money and the freedom for an individual to develop various ideas into a number of products and works that will be found to be of immense benefit to society. To encourage discovery and creative development among its citizens, the law is designed so as to give an originator a certain amount of time within which he will be allowed to control both the content and disbursement of any of the products which might happen to result from his idea. In the event that someone happens to seat al use this original material, they are liable to be charged with infringement of property. There are a number of reasons as to why plagiarism is found to be so extensive among students within higher education. In a study conducted on a sample size of 5000 students, the results of the study suggested that an estimated three-quarter of the sample group admitted to having engaged in some form of academic cheating. A large number of students in the sample group recorded as having previously plagiarized supports the notion that while it is possible to reduce plagiarism in the various institutions of higher learning, it is nevertheless impossible to completely eliminate it.  16 percent of the students in the study cited the reason as to why they plagiarized was a result of the belief that they would not be caught, students were aware of the rather immense pressure that the university staff were under as a result of teaching and marking the results of a large number of students and believed that they could be able to safely take the chance with submitting plagiarized work.

HMVs E-business Performance Case Study Example | Topics and Well Written Essays - 3750 words

HMVs E-business Performance - Case Study Example During the early years, HMV was a brand name known to every music lover and became synonymous to music retailing. This helped HMV to expend its base out of London to all most every corner of Britain. The first major period growth came in the sixties, when fifteen new stores were opened in grater London and south east and then again in the following years it becomes customary affair for HMV. Store sizes of HMV have been increasing to accommodate the vast range of music videos, computer games etc. In October, 1998, this process culminated in the opening of HMV in new 50,000 sq feet flagship store at 150 Oxford Street, listed by the Guinness book of records at the time as the world's largest record store. In later years, HMV continued to launch its flagship standard superstores all over UK. The UK based chain was also able to successfully export the branch to the rest of the world and retail chains were established in North America &South East - Asia. HMV continued to lead the way in mu sic retailing into the millennium and launch HMV - direct in 1992, its mail order operation and in 1997, its own website WWW.hmv.co.uk shows its commitment towards adopting new technologies and to cater the opportunities which lie ahead. Now HMV has developed into one of the world's leading ret... HMV is dedicated to provide its customers the widest range possible of music, films and games across all formats. Recently, the music industry specially has seen the revolution in the form of digital music which has the capacity to be offered at any time, anywhere in the world through number of channels. This has increased capability to reach out vast number of audiences. "Electronic commerce is often thought simply to refer to buying and selling using the Internet; people immediately think of consumer retail purchases from companies. But e-commerce involved much more than electronically mediated financial transactions between organization and customers. Many commentators refer to e-commerce as all electronically mediated transaction between an organization and any third party it deals with. By this definition, non-financial transaction such as customers' requests for further information would also be considered to be part of e-commerce (Chaffey, 2004). The HMV group operates form approximately 680 shops in 7 countries and total retail floor space of 3.6 million square feet. For the full year ended April 2007, HMV group had a turnover of 1,894.5 million pound and operating profit of 57.3 million pound. HMV UK & Ireland sold 78 million CD & DVD units and water stone's 58 million books in the financial year ended April 2007. The acquisition of Ottakar's for 62.9 million pound brought together two businesses similar to each other i.e. book selling and music, video & games selling. Waterstone and Ottakar are both specialists offering a wide range of titles. This step has been taken by the company to accommodate customers' requirements. Book selling in UK has been impacted by intensifying competition form

Head Case :: Biology Essays Research Papers

Head Case Most of the little girls I knew in my childhood liked to play dress up, host tea parties, play with dolls, paint, and do other "normal" children's activities. When I was a little girl I enjoyed painting, hosting tea parties, and spent many of my weekends and school vacations competing in both national and international martial arts tournaments and exhibitions. Martial arts taught me self-discipline, self-control, and self-awareness as a child. It kept me physically fit, and made me more confident in my abilities. However, as I progressed through the ranks I spent more time training and much more time competing. Once a practitioner reaches the level of Black Belt, all sparring matches become full contact, meaning blows to the head, neck, and below the waist are now scored as hits as opposed to fouls by sporting rules. I reached the rank of Black Belt at age eight, meaning I participated in full contact sparring matches for roughly six years. In addition to my competing as a martial artist, I was also an amateur boxer for two years- from ages 13 to 15. At the time, I didn't think about the consequences of the sport I had chosen. The daily punishment of taking one or two hard blows to the head didn't seem troublesome at the time. All competitors wore gloves in addition to protective headgear and mouthguards. In the roughly ten years in which I fought competitively I sustained several concussions, and only one in which I lost consciousness. However you may wonder, what is the clinical definition of this condition, and how are concussions diagnosed? What is a Concussion? When an injury to the brain is sustained, it causes the brain to bounce against the hard bone of the skull. The force of the hit against the skull might cause "tearing or twisting" of structures and blood vessels in the brain. This "tearing or twisting" deep within the brain tissue causes a breakdown in the normal flow of messages within the brain. This breakdown is the biological explanation of the concussion condition (1). Oh No! Am I Concussed? There are over 600,000 cases of sustained concussion in the United States alone each year. Symptoms include, loss of consciousness, dizziness, nausea or vomiting, increased size of one pupil, loss of memory, severe headache, weakness in one or more extremities, or changes in behavior. These symptoms may last anywhere from a couple hours to several weeks or months, depending on the seriousness of the injury, according to most physicians (1).

Intermediate Financial Management

BA – 316 Project Part 1 Identify a company Look at financial statements (from previous years, at least one year) Conduct ratio analysis. Use Dupont equation from results.. Make a financial statement Organize and Analyze Statements Make recommendations – how will you improve the forecast Strengths, weaknesses, etc. Part 2 Forecasting – Statistical Analysis Standard Goal of 10% Determine location of new funds (borrowing, issuance of stocks, capital) ? page to 1 page proposal before starting project Chapter 2 Homework – (5 , 9) & Mini Case (a – i), (#12 for 08/31) *Mini Case (j – m) for 09/12 Correlation Coefficient -> Degree of variability Possibilities of economy on investments ProbabilityRate of Return A Pessimistic. 2513% Likely. 5015% Optimistic. 2517% Realized Rate of Return & Correlation Coefficient ***Calculate Correlation of Coefficient for these stocks Stocks X, Y, and Z Year 1Year 2Year 3Year 4Year 5Avg? X8%10%12%14%16%12%3. 16 Y16%14 %12%10%8%12%3. 16 Z8%10%12%14%16%12%3. 16 Correlation – A statistical measure of the relationship between the rates of return of two assets Correlation Coefficient – A statistical measure of the degree of the relationship between the rates of return of two assets. Positively Correlated – Describes two rates of return that move in the same direction Negatively Correlated- Describes two rates of return that move in opposite directions ?= t=1n(ri,t-ri,avg)(rj,t – rj,avg)t=1nri,t-ri,avg2t=1nrj,t – rj,avg2 Yearr  ? xryrz 18%16%8%Rxy= 2101410 3121212Rxz= 4141014 516816 Diversifiable Risk Company-specific risk Unsystematic risk S&P, NASDAQ, Dow Jones Non-Diversifiable Risk Market Risk Systematic Risk The risk of a portfolio depends on the correlation coefficient of returns on the assets within the portfolio. 1. If rate of return of two assets are perfectly positively correlated, R = 1 2. If rate of return of two assets are perfectly negatively correlated, R = -1 3. If rate of return of two assets are independent, -1 < R < 1 Beta Coefficient – b Measure of the risk that one asset can contribute to a portfolio ry = a + b(rM) When beta is positive, it means that the stock moves with the market And vice-versa if beta is negative Beta measures the non-diversifiable risk of an asset. Find Correlation Coefficient (as a portfolio) Calculate beta – Use S&P What should be the risk of the portfolio? **Pick a pair Exxon & BP Walmart & Kroger Verizon & AT&T Toyota & Ford CAPM – Capital Asset Pricing Model A model that describes the relationship between the required rate of return and the non-diversifiable risk of a portfolio rMrxryrz 55102. 5 1010205 1515307. 5 20204010 25255012. 5 30306015 r17. 517. 5358. 75 b1120. 50 ?111 bx= ? rx? rm? xm = ? x? m? xm SML Equation – ri = rrf + (rm – rrf)bi IF rm = 9% RRF = 3% bA = 0. 5 bB= 1 bC= 2 Slope of SML line provides the riskiness of the market, aka market risk premium. Chapter 3 – page 76 Optimal Portfolio Homework (#7) Covariance COVAB = i=1nrAi- rArBi- rBPi ProbabilityAsset AAsset BAsset CAsset DAsset E .158%4%12%2%4% .20861046 .3088878 .2081061210 .1581241612 r ? 88888 ?02. 522. 524. 662. 52 COV COVxy= ? x ? y(? xy) Solve COVBD, COVBE, COVCD Calculate risk without beta ?p= wx2? x2+(1-w)y2? y2+2w(1-w)? xy? x? y Two key factors for investing How much is the rate of return What is the risk involved If COV is large & positive Portfolio standard deviation will be between the two stand-alone deviations If COV is large & negative Portfolio standard deviation will be minimized (lower than the lowest one) Analyzing portfolio options Asset AAsset B r ? 5%8% ?410 wawbr ? p 100%05. 0 75%25%5. 75 50%50%6. 5 25%75%7. 25 0100%8. 0 ?p ?ab = 1? ab = 0? ab = -1 Linear relationship between increases in portion changes of asset A vs. asset B Percentage change in risk also remains constant if perfectly positively or perfectly negatively correlated Look into financial statements for project, bring to class 09-28 r ? A = 5% ?A = 4% r ? B = 8% ?B = 10% wAwbr ab = 1? ab = 0 ? ab = -1 100%0%5%444 75255. 755. 53. 90. 5 50506. 57. 05. 43. 0 25757. 258. 57. 66. 5 01008. 010. 010. 010. 0 Plot rate of return on y-axis and risk on x-axis The feasible set will be determined Most Efficient portfolio Provides maximum expected rate of return with the least risk. The capital market line Shows the possibility that investors could have an efficient portfolio outside of the feasible set Short-term borrowing and short-term lending

Racial Differences the Tempest - 1757 Words

Racial Differences in The Tempest The Tempest is a classic example of Shakespeare’s dichotomized notions of right and wrong within the context of racial inherencies, a social commentary of the colonialism of the New World. An important theme in the play is the racial differentiation between Caliban and the other antagonists, primarily, Prospero, who comes to the island and enslaves Caliban to enforce his own rule. This relationship, as portrayed through the play, is a reflection of the historical social and racial tensions that existed between the colonizers of New Europe and the Native Americans and is illustrated through the language employed by Shakespeare and the interactions that take place between the characters. The Tempest†¦show more content†¦The racial and colonial divides do not remain at the mere differentiation or relegation of a people but extend to explain why these differences justify the dominance of supposed superior culture over these very people. T he play reflects early modern conceptions of race and racial differences through the marriage between Claribel and the African King of Tunis as well as through the treatment of Caliban by the antagonists. Claribel marries the King of Tunis out of obedience to her father even though she does not want to. Shakespeare portrays this marriage to an African as degrading, reflecting the racial conception of the inferiority of the colored man to the white man through the character of Sebastian and his conversation with Alonso, the King of Naples: That would not bless our Europe with your daughter, But rather loose her to an African, Where she at least is banished from your eye, Who hath cause to wet the grief on’t . . . You were kneeled to an importuned otherwise By all of us, and the fair soul herself Weighed between loathness and obedience at Which n o‘ the been should bow. (36-37) Caliban also reflects the racial differences and inferiority of other races to the white race, which is partially reflected in his contrast to Prospero. Caliban’s mother wasShow MoreRelatedWilliam Shakespeare s The Tempest1874 Words   |  8 Pages â€Å"You look similar to me with your appearance. Not just with skin color, but with hands and feet,† said the Caliban from Shakespeare s The Tempest, (or as I will call him, Caliban X). â€Å"I share the same sentiment,† said the Caliban from Cesaire s A Tempest (or as I will refer to him as, Caliban Y); â€Å"...and I am not aware of the circumstances of why we are here, but we can use this time for a purposeful discussion about our livelihoods.† â€Å"I seem to have heard you mention the color of ourRead MoreNo More Miss America By Robin Morgan Essay932 Words   |  4 Pagesstereotype based on racial beauty standards, submissiveness, and inferiority to men. 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